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Financial modelling is an important aspect of financial analysis

Financial modeling is one of the most highly valued, but thinly understood, skills in financial analysis. The objective of financial modeling is to combine accounting, finance, and business metrics to create a forecast of a company’s future results.

Financial modelling is an important aspect of financial analysis. It combines forecasting, accounting, and business metrics to represent a business’s future portfolio accurately.

There are different types of models, namely:

đź“ŚDiscounted cash flow analysis (DCF model)
đź“ŚLeveraged buyout (LBO)
đź“ŚMergers and acquisitions (M&A)
đź“ŚSensitivity analysis

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Forecasting is hard enough without basing it on fictional assumptions

Why did God create economists? To make weather forecasters look good. So the old joke goes. Or, as JK Galbraith, the famous American Keynesian, put it: “The only function of economic forecasting is to make astrology look respectable.” Pity, then, those who practise that trade.

Forecasters have had a difficult few years. The failure to foresee the crash of 2008, which prompted the late Queen to ask why economists had missed it, led to some serious soul-searching. While nobody could have asked them to forecast the Covid pandemic, failure by many to predict the high and persistent inflation that has come in its wake was less forgivable.

The Bank of England was among those that didn’t see inflation coming and, once it arrived, how persistent it would be. Its growth forecasts have bounced around more than you’d hope in recent months. To be fair, it has been willing to sit outside the consensus. I’m glad the Bank has been willing to be brave about its forecasts and not simply to go along with the crowd. But its stupendously gloomy forecasts of a few months ago now, happily, look to have been overly pessimistic.

In response, at the end of last month the Bank asked Ben Bernanke to “lead a review into the Bank’s forecasting and related processes during times of significant uncertainty”. That is a welcome act of reflection. Securing a former chairman of the Federal Reserve and a winner of a Nobel prize was something of a coup. No doubt his review will be incisive and instructive.

Meanwhile, across town sits the other official forecaster on which so much of our economic policy depends: the Office for Budget Responsibility. While the Bank’s forecasts are the basis for setting interest rates, the OBR’s set the context for tax and spending policy. Right now, its forecasts are the key constraint on the chancellor’s room for manoeuvre. The OBR judged that his budget had pushed his self-imposed fiscal rules to their very limits. How the OBR’s forecasts develop could determine whether Jeremy Hunt feels he has any room to offer a pre-election tax cut.

Some, most vociferously Liz Truss, have expressed irritation that it can be hard to get the OBR to “score” positive growth effects from policy. Tax cuts or spending increases that will raise growth will result in more tax revenue, with perhaps fiscal benefits rather than costs. But which ones will achieve that? The OBR, rightly, wants some solid evidence before it will agree to include the growth effects of policy in its forecasts. Wishful thinking will not do.

It did score a positive growth effect from the expansion of free childcare provision announced in March. Had it not been persuaded of the efficacy of the policy — largely, I should say, on the basis of research carried out by colleagues of mine at the Institute for Fiscal Studies — the full gross cost would have been scored and it would have looked “unaffordable” against the fiscal rules. But that was unusual.

The power of both the Bank and the OBR is considerable. Their forecasts affect us all, even if, as the OBR said last week, “single-point economic forecasts of an uncertain future are almost certain to be wrong”. Necessary, but wrong.

Given that, transparency and reflection are vital. The Bank is embarking on a review. The OBR engages in regular review of its own performance. Last week it published a comprehensive analysis of its record since its inception in 2010. The headline? Well, the main thing I took away was that, contrary to some perceptions, it has tended to take a rather rose-tinted view of the world. On average, its forecasts have been too optimistic. The same has been true, since 2010, of the Bank. So ignore those who would have us believe that the OBR (and the Bank) have been the doomsters and naysayers, talking down the economy and overstating the negative effects of Brexit. The evidence is of the reverse. If anything, they’ve been too positive.

There has been another element to the OBR’s forecasting problems, though, and that has come directly from government itself. Its economic forecasts are only one input into its forecasts of borrowing and debt. A rather big part of the reason for over-optimism in these fiscal forecasts has been the taking of published government plans at face value. It has to.

On the tax side, it has had to live with the fiction that fuel duties will rise every year in line with inflation. They haven’t done so since 2010. On the spending side, it has had to accept published plans that always suggest lower spending a few years out than is ever achieved. The latest forecasts, which predict debt falling by the most minute amount five years hence, are, for example, predicated on eye-wateringly tight spending numbers for the post-election period. I would be amazed if that is the path actually taken by public spending, but for official purposes we have to live with these fictions.

Economic forecasting is never going to be anything near a precise science. It needs to be seen for what it is: a useful but flawed guide, better than nothing but not a blueprint for the future. It needs to get better. Forecasters need to be clear and precise about the assumptions that drive their results. And, given their immense power, they need to be humble. Equally, if the whole point of the OBR was to take the politics out of fiscal forecasting, governments need to be more honest and realistic with what they say about tax and spend. Alternatively, the OBR should itself be permitted to call them out and to base its forecasts on its own more realistic view of what might actually happen.

Published In The Times by Paul Johson

Can FP&A applications be made more flexible?

Budgeting & Forecasting applications are often considered inflexible in comparison to Excel, which allows you to add or change formulae and layouts at will.

The inflexibility of Budgeting & Forecasting applications is mainly due to their lack of customization options, which makes it difficult to adapt them to different scenarios. These limitations can also restrict the ability to quickly react and adjust plans as market conditions change. Ultimately, this inflexibility may lead to higher costs for businesses in terms of time and resources spent on manual data entry and adjustment, or even worse force the business to switch back to spreadsheets.

However, some modern budgeting & forecasting applications are starting to incorporate more advanced features that allow users greater flexibility when creating budgets or forecasts.

By utilizing these tools, businesses can create tailored plans that are better suited to changing market conditions while saving time and money. Ultimately, inflexibility can be overcome by utilizing the right budgeting & forecasting application that is tailored to your particular needs.

In selecting the right application, businesses will ensure they have the flexibility and control needed to make accurate and timely forecasts while staying within their budgets. With the right application in place, organizations can stay on track with their financial objectives with minimal effort.

Whether you use Excel or a Budgeting & Forecasting application, they all require a certain amount of time and effort to set up and configure.

This is especially true for users who have limited technical skills or lack the resources necessary to customize their software package.

Due to the inflexible nature of many budgeting and forecasting applications, they are unable to take into account changes in business circumstances that may occur over time, leading to inaccurate projections.

While this inflexibility can be seen as a drawback of these types of applications, some companies find it valuable because it ensures consistency throughout the financial process. By using an inflexible system, businesses can also minimize any human errors that would otherwise be made when manually inputting data.

Ultimately, the inflexibility of budgeting and forecasting applications is a double-edged sword, and it’s up to the user to decide if the benefits outweigh the drawbacks.

At ProForecast we recognise these limitations and have addressed them in two ways, 1) by creating a professional services department which allows users to make and add features to suit their business inexpensively and cost-effectively and 2) by marrying AI & our FP&A consultants to make the setup process quicker and easier.

With many applications, new features are driven by a roadmap that means that users are at the mercy of the timetable of the application provider, with ProForecast we can discuss the features you need, draw up a specification and a fixed price that will then enable the system to be customised to exactly fit the timescale and business requirements.

The Panacea of a Budgeting & Forecasting Application

Whether it is panacea or not the answer depends upon your circumstances, your budget and the application you buy. For any small business, we don’t believe that an application will offer any benefit over Excel, you don’t need other people to contribute to your budget, and you probably don’t need to share them, what you need is a good cash flow forecast. If you understand your business it really should be a piece of cake to build a cash flow forecast which will be adaptable, accurate and suit your business, it’s not rocket science.

However, if your business is more complex with multiple branches, a large cost structure, and many employees, customers and suppliers then a SaaS-based app will probably be worth your while. Depending on the application, you may have access to machine learning AI to help forecast, you might be able to build complex company structures, have multiple bank accounts, add your own calculations, access a template library, integrate into your core accounting application, have an audit trail, sharing capabilities and a host of other tasks. 

Despite all of these features and wonderful gizmos, I can assure you that there will be things that you want to do that the software is just not built to do. We see it time and time again when clients come to us from other applications where they are frustrated by a particular missing bit of functionality that they need for their business.

Because of this, we have a professional services division that will relativity inexpensively customise features so that ProForecast fits your business processes. If we believe that these features will benefit other customers we will contribute towards the cost to ensure that we can incorporate the change into the core application for the benefit of all customers.

In contrast, traditional suppliers are very inflexible and if you require a change you have to go through their lengthy product development process which can take years. Even then they may not make the change as it might benefit only a small number of customers. Many of our clients come to us because they were frustrated by the lack of customer service and innovation from their previous supplier.

Having said all of that every application needs both a financial investment and an investment in your time and resources to maximise the value. If you simply want to press a button and magically create your budgets and forecasts, I have to tell you that it wont happen. You need to spend time to craft your setup and first budget, but the good news is that once you have done that the time and cost savings going forward will be immense.

In Summary

SaaS-based budgeting & forecasting apps have many features and benefits which will be appealing to businesses of all sizes, but depending on your business you might not need them all. Our approach is different in that we don’t force users to use the features that they don’t need and we will actively work with them to add the features that they do need if we don’t have them. Ultimately, it’s your choice and you need to decide what is best for your business, but I would conclude that SaaS based applications are neither a panacea or a headache, but a very helpful tool.

The Success of Powerful Non Financial KPIs

The Success of Powerful Non Financial KPIs is seen in the results of businesses that make better decisions about resource allocation.

Trends in non-financial KPIs can give valuable insights into how a business is performing, with a variety of non-financial KPIs that can be tracked, depending on the business and its sector.

Some common examples include employee turnover rates, safety records and production levels. The real value though comes from tracking the key business drivers, the sales pipeline and customer satisfaction levels.

If you have a firm handle on the source of your business then you can spot hidden dangers that might lead to future problems, and equally, it is no good having a successful sales machine if customer satisfaction levels are declining and you keep losing customers.

Taking a deep dive into the sales pipeline, website visitors, social media clicks, engagement, followers, cost per click, cost per lead, lead sources, and conversion rates per lead source will reveal the true health of your sales pipeline and allow management to take action at an early stage if any keys indicators start to deteriorate.

For example whilst sales values, pipeline value and conversion rates may superficially look healthy, a deep drill down may reveal that the fundamental drivers, website visitors’ clicks and social media engagement are slowing or declining, which in the future will adversely affect the pipeline. In this way, management can make early interventions before the damage becomes real.

Similarly, the emphasis on customer satisfaction can not be overstated, there is no point in pouring more resources into acquiring new customers if they are then leaking out of the bottom.

Customer satisfaction needs to be closely monitored and needs to be a key part of the monthly management review, its a fantastic way to highlight hidden problems, if customer satisfaction levels are trending downward, this could be an indication that the quality of products or services is declining, or that the business has stooped innovating and that products are losing relevance.

Another valuable non-financial KPI is employee satisfaction levels, poorly motivated staff will affect customer satisfaction and lead to increased staff turnover, with the resultant cost of recruiting and training replacements and the loss of the corporate knowledge base. Some further excellent examples of non financial KPIs can be found at and

There is however a great deal of difficulty in collecting the information and assimilating them into intelligent dashboards . The information is hidden in disparate departments and software packages which can be difficult to access promptly and is dependent upon how they can be retrieved and integrated into your budgets and forecasts.

The answer to this difficulty is to integrate those various software packages by direct integration into your budgeting and forecasting process. Proforecast has developed several relationships with integration partners that enable us to offer a wide range of custom integration packages so that we can quickly build custom integrations for the majority of CRM, Payroll, HR and social media packages, indeed any application with a restful API and feed the outputs into dashboards specifically designed for the individual business.

When coupled with ProForecast’s Rapier Ai forecasting tool it can become an extremely important addition to your management toolkit, please book a demonstration to discuss how we can help you.

Easily integrate your Projects into your Budgets and Forecasts.

One of the most difficult aspects of managing projects is integrating them into the company’s core budgets and forecasts. This is because projects are often seen as separate entities to be managed separately from the core business. However, this should not be the case, as projects can have a major impact on the overall budget and forecast for a company, and they need to be carefully considered when creating these financial documents.

There are many ways to manage budgets and many excellent software packages that enable users and teams to manage projects, this type of software can help track the progress of a project, as well as the costs associated with it, each has its own set of features.

Whatever software you choose that meets the needs of your company and your project, very few will integrate into the core financial packages that business’s use to run their business.

Consequently, Projects are either not properly integrated or have to be integrated using Excel spreadsheets with all the associated dangers, or by using a burn-down chart.

A burn-down chart shows the progress of a project over time and can be used to estimate the costs associated with the project or for multiple projects. However, this is a very crude method of integrating into a budget.

There are two aspects to projects, the financials and the time to deliver, both need to be considered and businesses need transparency so that they can be measured and recorded.

At ProForecast we are excited to announce that we have tackled these problems by creating a fully integrated budgeting and project management tool which gives users the ability to create multiple projects with daily bills of material, allowing users to accurately and simply record activities and the exact time that costs are incurred.

These values then flow directly into the company’s core budgets. Project managers can access the tool without necessarily having access to the core financials, access is controlled by permissions granted by the finance team.

The tool is so comprehensive that for activities that use subcontractors who are subject to CIS any payments are adjusted to account for the withheld tax, each activity and component will have its individual debtors and creditors’ terms and it includes the ability to model both supplier and client retentions and the release or write off. Projects can extend over any period and the bill of materials clearly shows all the activities and costs.

Additional reports include, cost burn down, time burn down, project income and cost statements, all integrated into the core budgets, users can build their own KPI reports or ask Proforecast to do so.

ProForecast is going to continue to develop this module and will be adding the ability to add files and documents to activities but want to hear from users about what features they would like to add. We will carefully review and add to our development pipeline.

If you would like to have a demonstration of our new beta Project Management tool please book a demonstration on our website,, we will be launching the application as part of our live product in mid-November 2022.

Well built formulae create better budgets.

Do you ever feel like your budget is a little “off?” That’s because it probably is. When you build formulas into your budgeting process, you’re relying on unproven formulae that sometimes create errors, contain broken links and formulae that can be altered by others.

This can lead you to create inaccurate budgets and forecasts, which can have a huge impact on your business. In this blog post, we’ll discuss the benefits of building formulas into your budgeting process using a proven FP&A platform such as ProForecast.

Building formulas into your budgeting process has a number of benefits.

Firstly, you can more accurately forecast costs. This is because you’re using the most appropriate method of cost calculation, rather than simply inserting a value.

Secondly it creates consistency, eliminating random values or guestimates . It is essential though that your formulae are well built and accurate. If your using Excel there are some good examples and useful tips at

In ProForecast building formulas into your budget is a very simple process, these are proven and trusted formulae which can’t be broken by inexperienced users.

Examples of ProForecast Inbuilt Calculations

In Proforecast there are over 300 purpose built proven and tested business process templates, for instance if you can create your departmental cost budget using a simple drop down list that can be selected for each overhead, for example:-

i) a % of sales by company

ii) % of departmental sales

iii) % of salaries

iv) % of fixed assets

vi) a sum amortised over 12 months

vii) a seasonally amortised sum

viii) a cost per employee

ix) a manual entry

xi) an amortised value subject to a growth rate.

Advanced Calculation Features in ProForecast

In addition each overhead can make use of our step change function which enables the cost to be flexed up or down throughout the life of the budget or forecast and every cost can be further amended by selecting whether any type of prepayment and accrual.

This is a highly accurate and simple method of inserting reliable and tested calculations which will increase the budgets accuracy and if you operate a decentralised budgeting system will allow your departmental heads to build their budgets accurately without introducing calculation errors.

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How Proforecast Demand Forecasting Can Help You Make Better Business Decisions

To be successful it’s important to have accurate information about future demand for your products or services. That way, you can make informed decisions about production levels, inventory, staffing, and other aspects of your operation. ProForecast demand forecasting can help you get that information.

ProForecast uses Rapier artificial intelligence (AI) to predict future demand for your products or services. Rapier takes into account a wide range of factors, including historical sales data, seasonality, and economic trends, but can also include social media activity and even account for delays in the port of origin for imported goods. This makes it much more accurate than traditional methods of forecasting demand.

Rapier is constantly learning and improving its predictions, a process that is accelerated by the feedback loop Proforecast provides. As customers purchase goods or services, that information is fed back into Rapier, which then refines its predictions for future demand.

This means that Proforecast can provide you with an ever-more accurate picture of future demand, so you can make better decisions about your business. In a rapidly changing world, having this kind of information can give you a critical competitive advantage.

Rapier has been developed by ProForecast’s data scientists, Innovate UK and Sunderland University and is a proven application with over 98% medium turn accuracy over the first six months of any projection, over the subsequent 6 months the accuracy gradually diminishes, but by regularly reforecasting Rapier constantly updates and learns, so maintaining the ongoing accuracy.

Rapier has a further unique feature, its not a black box where the user has no control. the user at all times has total control over the outputs and can amend them quickly and easily, so if as a management team you are aware of reasons why Rapiers predictions will be inaccurate they can be amended and overwritten.

Rapier is being integrated into the entire range of ProForecast’s accounting connectors, such as Sage Intacct, Sage 200, Sage 50, Accounts IQ, Xero, Quickbooks, with NetSuite, Microsoft Dynamics and Exact also being added.

Integrations into the following commercial applications are also available-

CRM systems – Salesforce, Monday, Soho, Hubspot, Slack & Sugar.

E-commerce – Magento, Shopify, Ebay, Google Shopping, Amazon and Lightspeed.

E-mail marketing – Mailchimp, Mandrill.

Helpdesk – Zendesk

Databases – Google Big Query and Snowflake

Our generic connector can also connect to any application with a restful API, and so in this way the ProForecast demand forecasting module can be configured to your exact requirements.

If you would like to learn more about how Proforecast demand forecasting can help your business, please contact us. We would be happy to discuss your specific needs and show you how our service can benefit your operations.

10 Reasons to use an integrated cloud based budgeting, forecasting and planning solution

These days, more and more businesses are turning to cloud-based budgeting and planning solutions. And it’s no wonder why: the cloud offers a number of advantages that traditional on-premise solutions simply can’t match.

Here are just a few of the ways that companies are benefiting from moving their budgeting and planning to the cloud:

1. Increased Flexibility and Scalability

One of the biggest benefits of the cloud is its flexibility and scalability. With on-premise solutions, businesses are often forced to either over-buy or under-buy licenses, leading to wasted resources and inflexible processes.

With a cloud-based solution, however, businesses only pay for what they use, making it easy to scale up or down as needed. This can be a huge advantage for companies that are growing rapidly or experiencing seasonal fluctuations in demand.

2. Improved Collaboration and Communication

Another big benefit of the cloud is improved collaboration and communication. With on-premise solutions, it can be difficult for employees to access information or work on projects together. It can also be difficult to segregate private data so that colleagues only have access to their specific  areas.

With a cloud-based solution, however, everyone can easily access the same information and work on files at the same time along with extensive user security profiles and audit trails This can lead to better decision-making and more efficient processes overall.

3. Eliminate Excel and the damage caused by unauthorised changes to formulae

The damage that unauthorised Excel changes can do is extensive and far-reaching. Not only can it result in the creation of broken formulae or links, which can cause major disruptions to your workflow, but it can also inadvertently cause catastrophic data loss. This is because Excel is a complex program that contains numerous algorithms and functions, many of which are not fully understood by users. As such, any changes made to these functions or formulae can lead to unforeseen errors and glitches that compromise the accuracy and integrity of your data. Furthermore, Excel’s reliance on macros for complex calculations makes it vulnerable to malicious attacks from hackers who may gain unauthorized access to your system and wreak havoc on your data. For these reasons, it is essential to eliminate Excel from your workflow and adopt more robust tools that are better equipped to handle the complexity of today’s business environment.

4 Proven & Tested Formulae and Business Process Templates

Cloud based system use proven and tested formulas and business process templates that will increase the accuracy of budgets and forecasts and eliminate the risk of divide by zero errors and other common excel issues.

Cloud based systems will incorporate extensive BI packages which enable the production of much more detailed reports and dashboards which can be customised and include variance actual reports and rolling forecasts.

5.Harness the power of AI

Cloud systems will incorporate proven AI solutions, preferably not black boxes, but AI solutions that can be user modified, because no AI solution can know what you know!

6.Inbuilt scenario and “What Iff” planning

Advanced scenario planning is at the heart of most cloud systems, enabling users to rapidly adjust forecasts in line with environmental, economic and political changes, all areas that traditional forecasts and budgets find difficult to accommodate.

7. Faster Month End Closing Routines

Cloud based systems will seamlessly integrate into many accounting systems enabling data to be pulled in quickly and accurately so massively speeding up month end procedures.

8. Reduced IT Costs

One of the biggest advantages of the cloud is that it can help businesses reduce their IT costs. With an on-premise solution, businesses have to pay for their own hardware, software, and licenses. They also have to hire dedicated IT staff to maintain the system.

With a cloud-based solution, however, all of these costs are included in the monthly subscription fee. This can lead to significant savings for businesses, especially small and medium-sized businesses that may not have the budget for an on-premise solution.

9. Increased Security

Another big advantage of the cloud is increased security. With an on-premise solution, businesses have to worry about securing their own data centre. This can be a daunting task, especially for businesses that don’t have dedicated IT staff.

With a cloud-based solution, however, all of the data is stored off-site in a secure data centre. This can give businesses peace of mind knowing that their data is safe and secure.

10. Improved Disaster Recovery

One final advantage of the cloud is improved disaster recovery. With an on-premise solution, businesses have to worry about backing up their data in case of a disaster. This can be a time-consuming and expensive process.

With a cloud-based solution, however, businesses can take advantage of the built-in disaster recovery features. This can save businesses a lot of time and money in the event of a disaster.

As you can see, there are a number of advantages that companies can enjoy by moving their budgeting and planning to the cloud. If you’re looking for a more flexible, scalable, and secure solution, the cloud is definitely worth considering.

ProForecast has all of these benefits and many more, ask for a free demonstration to see how we could help you.

Everybody is Winging it!

Top 5 faults in forecasting

  • Tops Down Sales Forecasting. This is when, to achieve an artificially imposed revenue number on the business annual sales targets are introduced into the forecast, without any real substance behind how they will be achieved. A noose around the sales guy’s neck. To be an incentive targets must be realistic. It’s like offering ÂŁ3,000,000 for the first person to high jump 3m, its 55cm higher than the current record, set in 1993 by a chemically enhanced Cuban, so not possible and not an incentive.
  • Magic Margins. Setting margin targets which can only be achieved by increasing prices to unsustainable levels. When setting selling prices in a forecast, ensure they represent a competitive selling price not a crack pipe to delude your audience. Again, Sales beware. You may have guessed that I have run sales in a number of organisations and have been on the receiving end of such fanciful targets.
  • Keep it real. Forecasts are a view of the future and as such inherently full of potential inaccuracies, you don’t know what you don’t know. Make sure your forecast is representative of historical performance and tune the outcomes to take account of the things you do know with a reasonable degree of certainty. If Amazon said they were going to increase warehouse staff during the festive period at no incremental cost as Jeremy Clarkson, David Tennant, Scarlett Johansson and the other talent contracted to Amazon Prime Video productions were going to pull free shifts picking and packing as part of their contracts. Amusing though that might be, its unlikely to true. Make sure you associate the fully loaded costs to everything you include in your forecast.
  • Deferred Revenue. Software licences, maintenance contracts and many other services come with an upfront payment for a time period, typically one year. Such revenue is meant to be recognised pro rata over the period it covers. Just remember you’ve had the cash and no more is coming so don’t be surprised if you spend it all up front and still have the liability of providing the service that there may be a hole in your cash flow.
  • Just how much is your stock worth? Over stating the value of your stock to shore up your balance sheet isn’t a new form of creative accountancy; Ted Baker seem to have been doing it for years to accumulate a total of ÂŁ25,000,000 over valuation. That’s a lot of shirts and shoes. Remember that inventory has a shelf life after which it starts to become worth less than you paid for it. That’s what sales are for, to move slow moving stock, don’t just let it accumulate and report it at full value. It will come back to bite you, even the dimmest board will catch on sooner or later. If not them the auditors will. We’ve all done it every now and then, it only works if it’s a short-term fix/fudge.

Using a powerful strategic planning and forecasting tool will allow you to avoid some or all of these faults and many more beside. ProForecast let’s you build your strategic plan and take into account all of these and many more vital statistics before producing your forecast.

Start now with ProForecast with a 30-day free trial at

Mark Harrison

Cheif Commercial Officer